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Google sees bright future in wearable devices

SAN FRANCISCO -- For years Silicon Valley has predicted that wearable devices would be the next big thing. And they are -- in Silicon Valley. Elsewhere, consumers haven't shown a lot of interest in the

Developers will get their first chance to try Android Wear, Google's new operating system for wearable devices, at the conference. And Google is expected to show off what a smart watch can do with a simple flick of the wrist, a glance or a voice command.

Splashy conferences that draw thousands of developers from around the globe are crucial for Google and rival Apple, which compete for the time and attention of software developers.

Developers dream up the apps that get consumers to buy devices. Apple held its Worldwide Developers Conference earlier this month in San Francisco.

"Unless an ecosystem of apps is there, it's hard for consumers to justify spending money on these gadgets," said Carolina Milanesi, chief of research at Kantar Worldpanel. "These companies have to create an ecosystem that makes the hardware a necessity for consumers."

Of all the areas in which Apple and Google compete, wearables has emerged as a key battleground. Growth is slowing in smartphones and tablets, and technology giants are searching for "the next big cash cow," Milanesi said.

Apple, which is under pressure to produce another trendsetting hit, is expected to bring out its own smart watch this fall. Bloggers have nicknamed it the "iWatch."

Both Apple and Google are targeting one of the most promising areas for wearable devices: tracking health and fitness data for consumers.

At its developer conference in early June, Apple announced HealthKit, which collects and shares health and fitness data from various apps and wearable devices. It also announced an app called Health to monitor that data on the iPhone. Google is expected to roll out a similar service at I/O.

Wearable devices are part of a broader effort by Google to extend Android beyond smartphones and tablets. The company sold limited quantities of its $1,500 Web-connected eyewear Glass to the public in April. It's also developing a smart contact lens to measure blood-sugar levels in diabetics.

At I/O, Google is expected to unveil the first product to come out of the Open Automotive Alliance, a consortium led by Google that includes Audi, General Motors, Honda Motor and others. Expanding Android into cars will compete with CarPlay, technology Apple released earlier this year.

In January, Google took aim at Internet-connected home devices when it paid $3.2 billion in cash for Nest Labs, which makes home gadgets such as thermostats and smoke alarms. Last week, Nest bought video-monitoring and home security start-up Dropcam for $550 million in cash.

"Google wants to make sure that they are present in our lives: in the living room with Nest, in the driverless car, on wearable devices and on tablets and phones" Milanesi said.

Analysts say this big push into wearable devices could broaden their appeal with consumers. But so far, it remains a nascent market.

Some 2.8 million wearable devices, including smart watches and fitness trackers, were shipped in the first quarter, according to ABI research. By way of comparison, 300 million smartphones were shipped in that same period.

Android is the world's most popular mobile software, powering more than 1.2 billion phones and driving users to the company's wildly profitable search engine and advertising business. ​Investors have high hopes that wearable devices could be a future source of revenue.

Shares have risen ahead of Google I/O. But year to date, they are trading up 3%, lagging the S&P.

"People are targeting large numbers for the wearables space," said BGC Partners analyst Colin Gillis. "This market may take longer to grow than some investors think."